September 29, 2017

Second Circuit Affirms Dismissal of Queens Movie Theatre Case

Holland & Knight Antitrust and Competition Blog
David C. Kully

On Sept. 21, 2017, the Second Circuit issued a "summary order" affirming the dismissal – with prejudice – of an antitrust complaint brought by an operator of a movie theatre in the Forest Hills area of Queens against Regal Entertainment Group. The Forest Hills theatre, Cinema Village Cinemart, a five-screen complex that the district court described as "[l]ocated on a side street among antique shops" and that "offers low ticket and concession prices and serves primarily local, elderly customers," complained that Regal had pressured movie studios to agree not to provide first-run movies to Cinemart.  Regal's nine-screen Midway multiplex, near the commercial center of Forest Hills, sits approximately one mile from the Cinemart theatre.

The district court found several problems with Cinemart's allegations that Regal violated Section 1 of the Sherman Act, which prohibits only agreements that harm competition, and not merely independent or parallel business decisions.  It found first that Cinemart had not plausibly alleged that each movie studio's decision not to provide first-run films to Cinemart was the product of an illegal agreement with Regal.  The court found it just as plausible that each studio, after Regal informed it that it would not show at the Midway any first-run films also offered to Cinemart, made the independent business determination that having its movies at the Midway offered greater benefits than if the film were shown only at Cinemart's theatre.  Cinemart's "conclusory allegation[s] of agreement" were insufficient to survive Regal's motion to dismiss.

Another defect the district court found with Cinemart's complaint – the only one on which the Second Circuit based its summary affirmance – was Cinemart's failure to properly plead a relevant geographic market in which Regal's conduct harmed competition. The geographic market in antitrust cases consists of the geographic area in which consumers regard different sources of supply to be reasonably substitutable.  For movie theatres, an important question would be, if one theatre raised its ticket or concession prices (or failed to clean its theatres or otherwise keep up with quality improvements), to what other theatres in what other geographic areas would moviegoers turn for lower prices or a better theatre experience?  Although, as both the district court and Second Circuit observed, the Forest Hills area in Queens "is easily accessible by subway, rail, bus, and car," it is not implausible that many of Cinemart's customers would have been reluctant to travel great distances to see a first-run film – and that it and Regal's nearby Midway theatre complex were close competitors for moviegoers in Forest Hills.

Both the district court and Second Circuit took Cinemart to task for inconsistencies in its geographic market allegations. In some instances, it defined the geographic market as the Forest Hills neighborhood of Queens, and in others as the entirety of the borough of Queens. The Second Circuit also took judicial notice of the existence of other theatres operating in the Queens neighborhoods surrounding Forest Hills, to which consumers in Forest Hills could conceivably turn as alternatives to the Cinemart or Midway theatres. Cinemart certainly would have had to define the geographic market with greater precision in an amended complaint and allege facts that would plausibly explain why the other Queens theatres would not be good practical alternatives for moviegoers in Forest Hills, but it was denied a further attempt to refine its allegations to pass muster. Although other defects in Cinemart's complaint might have been harder for it to correct, the geographic market imperfections on which the Second Circuit focused did not appear to be insuperable. But Cinemart will not have another opportunity to correct its errors.

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